Apollo Hospitals down, investors unimpressed but brokerages upbeat about 24/7 future

Brokerages are optimistic about Apollo 24/7, is the hospital chain’s online pharmacy business, to break even by the end of this fiscal. A strong growth in the core hospitals business also aided optimism

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Apollo Hospitals stock fell over 2 percent in the early trade on August 14 as investors were bogged down by lower-than-expected April-June earnings even after brokerages rolled out encouraging views over the waning cash burn at the company’s Apollo 24/7 vertical.

At 9.41 am, Apollo Hospitals Enterprises was trading at Rs 4,779 on the National Stock Exchange, down 2.6 percent from the previous close.

Even though the net profit for Apollo Hospitals nearly halved on year in the June quarter to Rs 173.4 crore, missing the Street’s estimate of Rs 177.6 crore, it still reduced its operational expenditure in the Apollo 24/7 business. The newly set-up vertical has been a major drag on earnings in recent quarters.

Brokerages upbeat on Apollo 24/7

Foreign brokerage firm Macquarie also sees this decline in losses in a positive light.

According to Nuvama Institutional Equities, consistent pharmacy growth and waning cash burn at 24/7 instils confidence in the management’s execution.

“While 24/7 revenues were subdued, we are enthused by management’s efforts to reduce 24/7 spends, which could ease margin pressure in the medium term,” Nuvama said in its report.

Apollo 24/7 is the hospital chain’s online pharmacy business which comes under Apollo HealthCo, the arm that also hosts the diagnostics vertical.

Motilal Oswal Financial Services also shared similar views. It remains positive on Apollo on sustained healthy growth and profitability in healthcare services, and efforts to achieve breakeven in the business by the fourth quarter of the current fiscal.

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Choice Broking derives its optimism on Apollo from its aggressive store expansion plans, presence across the healthcare delivery chain, cost optimisation measures, breakeven efforts at its pharmacy division along with a focus on increasing bed occupancy levels.

Hospital business healthy

Apollo’s core hospital business also saw a rise in Average Revenue Per Occupied Bed (ARPOB). “Apollo’s efforts in optimising the payor mix and high-end surgical work are bearing fruit, evident in the 11 percent ARPOB growth in April-June,” analysts at Nuvama Institutional Equities said.

Brokerage house SMIFS also expects the patient mix to improve going forward as international patients’ revenue contribution will increase to 10 percent by the end of FY24 from current levels of 6-7 percent.

“The hospital business may see margin expansion of 100 bps (basis points) on year in next two years, led by improved payor mix and cost optimisation,” the brokerage said.

Macquarie also sees a pick-up in hospital volumes and still-smaller losses at Apollo 24/7 as the key upside triggers for the healthcare services company.

For SMIFS, the next leg of growth for Apollo will be driven by an addition of beds in the hospital segment with further improvement in payor and case mix, significant growth in GMV (Gross Merchandise Value), expansion of offline pharmacy stores, cost optimisation, and reduction in losses of 24/7.

MOFSL, Nuvama and Macquarie each have a “buy” call for Apollo Hospitals, with target prices that reflect an upside potential of 15-21 percent from the closing level of August 11.

Choice Broking retained an “add” recommendation on the stock, with a target price of Rs 5,466.

Also Read | Apollo Hospitals Q1 net fails to meet projection with 46.5% slump

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